AIG Saved by the Feds

After initially resisting to come to the rescue, and unsuccessfully persuading some of the largest (private) banks in the country to pony up a bridge loan or two, the U.S. government seized control of American International Group, the insurance giant commonly known as AIG, on the evening of September 17, 2008, just past 7:30 p.m.

The deal is a monumental one, putting a private insurance firm into the hands of the government and thus placing U.S. taxpayer dollars on the hook (I don’t know about you, but I didn’t want to go into the insurance business). The deal sends $85 billion to AIG in the form of a federal loan and hands the U.S. government an approximate 80 percent stake in the insurance company. The deal also sent AIG CEO Robert Willumstad packing (but not empty-handed; he’ll likely pull down an $9 million exit package). Willumstad will be succeeded by Edward Liddy, the former head of fellow insurance giant Allstate (who will now answer to Uncle Sam, AIG's new chairman of the board).

The deal followed closely behind the U.S. government deciding not to bailout crumbling investment bank Lehman Brothers, resulting in Lehman filing Chapter 11 (before finding a beige, if not white knight in Barclays, which picked up a good chunk of Lehman yesterday, keeping about 10,000 Lehman-ites employed, for the time being at least). But the Feds decided yesterday that the markets, despite being able to deal with a Lehman bankruptcy, could not handle an AIG one (some say its collapse would have resulted in $180 billion in losses across the financial industry; it would have also likely resulted in a massive amount of job losses, not just at AIG but at many other firms certain to be affect in the fallout). Though this would've likely been the case, the bailout set a precarious precedent, which is already being hotly debated across the country, including by the two remaining U.S. presidential candidates.

Where do you stand? Should the U.S. have stepped and saved AIG in or not?

As always, we welcome your comments and thoughts below.